Interest on Delayed GST Payment on Net Cash Liability
Under GST laws, interest was levied on delayed GST payment on gross liability (tax liability paid by cash and input tax credit). Due to the ongoing interest recoveries by GST department for the delayed payments, it was argued that interest must not be levied on the delayed GST payment made through utilisation of input tax credit (“ITC”).
Section 50 of the GST Act was amended vide Finance Act (No.2), 2019 to the effect that interest shall be levied on net tax liability (tax liability paid by cash). However, the effective date for the applicability of the said amendment was to be notified later. Subsequently, in 39th GST council meeting, it was decided/ clarified that this amendment will be brought retrospectively from 1st July 2017.
Recently, the Central Board of Indirect Taxes and Customs (“CBIC”) vide Notification No. 63/2020 – Central Tax dated 25th August 2020 notified 01st September 2020 as the effective date of amendment to Section 50 of the CGST Act, 2017 i.e. levy of interest on delayed payment of tax on net-cash liability, i.e., the cash portion of liability.
This notification amending the provisions prospectively was issued in contraction to the decision of GST council. Such prospective amendment may result in interest recoveries by GST department on both cash as well as ITC component during the period 1st July 2017 to 31st August 2020.
However, CBIC vide press release dated 26th August 2020 has assured that no recoveries shall be made for the past period by Central or State tax administration in accordance with the decision taken in the 39th GST Council Meeting.